12 August 2010
The company has recd.the notice of demand u/s 143 or u/s 156 for tax amount.The company has replied to this notice. Does this notice amounts to contingent Liability as there is no litigation involved in it.
12 August 2010
If the assessment is completed and the demand is raised by ITO then it is a contingent liability if company denied for liability & replied to the notice or appeal filed by company. If the company is agreed with the demand then there is no contingent liability , it is a fix liability.
12 August 2010
Thanks Ratan, Under Sec.143 the assessment is completed by the ITO and notice of demand is sent.The company has made reply to this and the company has not gone to the higher authorities for appeal.HAD the company challenged top higher authorities,then there would be litigation for which the contingent liability would arise. Notice of demand u/s 143 is primary thing and common for all cases.Just notice of demand u/s 143 and reply to this ,does not amount to liability till the time same is rejected by the Income Tax Department. Pls provide your views.
12 August 2010
Dear Mangesh, it seems the demand is created by ITO u/s. 143(1) and not u/s. 143(3). However even if the demand is created u/s. 143(1) it is statutory demand i.e. a valid and legal demand. If the company has replied to ITO it means the demand created by ITO is not agreed by the company & accordingly a dispute is created by the company. With whom company is approaching for relief, whether with the ITO or higher authorities is immaterial because it is a procedural part. Dear Mangesh there is a very thin line as to decide whether there is contingent liability or not. You will have to use your professional expertise in such cases. If the demand is created only because of clerical mistake, totalling mistake or very obivious mistake by the department then there is no contingent liability. If the company while filing return of income has done errors in calculating tax liability, claiming deduction then even if the demand is created by 143(1), it is a valid and statutory demand. U have to go into the details of the case. So far as rejection of application by the ITO is concerned, there is no need to wait untill the ITO rejects your application. Thats why it is a contingent liability . Had it been rejected by the ITO the liability becomes fix one. Take the judgement accordingly.
12 August 2010
Dear Ratan, I have 2 questions 1) What are the remedies for the company if the Income Tax department rejects theier plea? 2) Is it necessary for the company to disclose such reply in the upcoming IPO prospectus as outstanding litigation?
13 August 2010
1. If the IT department rejects your application comapny will have to file appeal with the CIT ( Appeals ) or can file application with CIT u/s. 263/264.
2. If such demand is substantial then it is necessary to disclose in the prospectus.
16 August 2010
Dear Ratan, If the company has replied to 143(1) notice of demand and filed it's DRHP.There is no reply form IT Dept.Does this amount to litigation and create a contingent liabilitty as there seems to be no litigation in this part.
16 August 2010
Dear Mangesh, the demand created by the ITO is mentioned in the demand register of income tax department as the demand outstanding. So untill and unless the department accept your application the demand will stand as it is . Therefore it is a contingent liability because the IT deptt may or may not accept your application. In that case company will have to pay the dues outstanding.
16 August 2010
If the department does not give revert to your the letter for reply of 143(1) notice,will it term as pending litigation for filing DRHP.
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